Corporate Governance Issues at Volkswagen: A Case Study

This article discusses the corporate governance issues at Volkswagen, particularly in relation to the emission scandal. It explores the responsibilities of the supervisory board and the role of investors in resolving the crisis. The article also outlines the corporate governance failures that led to the scandal and suggests ways to resolve them. Course code: IBU5GW

IBU5GW Corporate Governance

Table Of Contents
Introduction 3
The Supervisory Board is ultimately accountable for the strategy and activities of the
company, hence they are ultimately responsible for the scandal. The CEO has resigned but
it should have been the Supervisory Board members 3
Investors and activist groups are increasingly exerting pressure on companies in regard to
their activities especially in managing their environmental risks. What could these
investors have done to help resolve the crisis 4
The Case 13 document refers to corporate governance issues at VW. Outline what you
think they are and how should have they been resolved 5
Conclusion 6
Reference List 7

Introduction
The structure of relations, rules, mechanisms and processes that are the basic units of of
controlling and directing a corporation and decision of the growth strategies and policies of the
corporation is referred to as the corporate governance. But an issue of corporate governance
plays a major role for any organization as it was in the case of Volkswagen. In September 2015,
the Environmental Protection Agency of USA found that there were many VW cars that were
sold in US market with a software installed in the diesel engines that could manipulate and
improve the results of the emission data and thus the German car manufacturing giant was
alleged of cheating the emissions test in the USA.
The present article will deal with some of the major questions that have been raised upon the
occurrence of this incident.
The Supervisory Board is ultimately accountable for the strategy and activities of the
company, hence they are ultimately responsible for the scandal. The CEO has resigned but
it should have been the Supervisory Board members
Business scandals are not a new matter that comes for the discussion, and the same makes sense
for the average consumers in cases where the companies cheat, steal, or lie. In most of the cases
infringement of the corporate governance remains to be the core reason behind the scandals that
come into the view. Corporate governance is the structure that directs, manages, organizes and
supervises an organization including its internal and external mechanisms of control. In general
we can find that the board of directors for an organization guides and heads the business of that
organization (Schluep Campo and Aerni, 2016). It is the same board of director that is
accountable to the CEO for the management of the business. Again the board of directors
remains acutely responsible for the governance and management of the organization and at the
same time also monitors the performance of the senior management. In accordance to the
corporate scandal of the Volkswagen, that was mainly due to the failure of corporate governance
laws and the company was caught in cheating the air pollution test of the USA (Bottenberg, et al.
2017). Although the fact was that the CEO of the company, Martin Winterkorn resigned from his
post by taking the entire responsibility of the cheating scandal of the diesel engines of the cars. In

relation to this specific case the representatives of the supervisory board of the Volkswagen
referred the entire case of the criminal prosecution to the German authorities, and with that they
also denied that the CEO of the company had any prior knowledge regarding the installation of
the software that was used in the engine of the cars from the house of Volkswagen. Along with
that Mr.Winterkorn also mentioned that he was at all not aware of the manipulation of the data
concerned with emission (Beschorner and Hajduk, 2017).
Now the question that arises here is that if Mr. Winterkorn was unaware of the happening then
why did he resign from his post. And even if the question of resignation comes then why should
the CEO alone stand providing his resignation while entire supervisory board is had the
responsibility and accountability of the strategies and activities being carried on within the
organization. As this was a matter of failure of the entire management team and their supervision
that ended up with the installation of software in the cars that could manipulate the the emission
data, so it was very much unethical that the CEO for the company took the entire responsibility
of the failure (Devine and Shrives, 2017). The fact is that only the rules, law, and some
suggested processes are not enough for the enhanced corporate governance system. A
strengthened board comprising of loyal personnel is very much essential for a company to
succeed. Here we may consider the Stewardship theory of corporate governance emphasizes on
the fact that the executives or the board members are the stewards of an organization and both
these groups have a common goal. So in that case, the board must play a supportive role so as to
increase the potential of the organization and bring about the higher performance(Tricker and
Tricker, 2015). If the blame of the emission scandal goes to the CEO, then that must equally go
for each and every member of the supervisory board as they are equally accountable for the
activities of the company.
Investors and activist groups are increasingly exerting pressure on companies in regard to
their activities especially in managing their environmental risks. What could these
investors have done to help resolve the crisis
The incident of Volkswagen regarding rigging the diesel engine of some of its cars to falsify the
results of the emissions tests was not only shocking but also had a negative impact upon the
customers and the investors (Thekdi, 2016). This kind of corporate misbehaviour is really

unacceptable from various perspectives. There is always a tradition in the sector of finance that
the basic aim of an organization directs it to maximize the values of the shareholders. With that
they also start believing that the investors always take into consideration the prices of the stock
and the impact of the output on the entire society is never a concern of the investors. But this
belief was falsified with the emission scandal of the Volkswagen, where upon having a negative
impact on the environment due to the installation of the software that manipulated the emission
tests results for the cars happened to drop the share price to almost one third. The investors
actually have their interests regarding deeds of an organization during the risk related or crisis
situations (Sharpe, 2017). Again to overcome the situations of such unplanned financial crisis the
role of the investors are of crucial importance. A situation of crisis may strike an organization at
any point of time and then it is the very group of investors who can bring about the confidence to
sort out the crisis and gain back the strength and impetus to stand back. In this case when there
were allegations on Volkswagen regarding installation of software in some of their cars for
manipulating the emission test results, then the investors across the globe filed lawsuits against
the company and also it was found that the share price declined to almost one-third as the
decisions of the investors takes into consideration the combination of both emotions and logic
(Johnston and Morrow, 2016). In this situation, the investors of the company already knew that
after this scandal they could not stay intact at their prior expectation but before filling the
lawsuits they could have waited for the scrutiny and that would not have declined the share price
to one third and that would have helped the organization to resolve the crisis more promptly.
Since the Volkswagen is not a new company in the market, so the investors specifically knew
that company was worth trust or not over the period of time. Thus the investors could have
shown a little bit of trust on the company at the moment of crisis and maintained its relationship
with the company rather than going for immediate action after the scandal was announced
(Salvioni and Gennari, 2015). Also the investors could have helped the company in resolving the
unplanned crisis in front of the media and that could be a huge help for the company in the
present digital era.

The Case 13 document refers to corporate governance issues at VW. Outline what you
think they are and how should have they been resolved
According to my point of view, the emission scandal of the Volkswagen was nothing else than
corporate governance failure. The very reason to make me think of the same is that the incident
provides for certain evidences that there is a lack of appropriate control system within the
corporate structure of the organization (Milne, 2015). A major responsibility of the effective and
efficient corporate governance remains in optimizing the problems of the an agency that may
arise due to the disparity or inconsistency of the interest of the management and the shareholders.
But this very system was defective in the case of Volkswagen and that is why it could not keep a
check on activities and strategies that are adopted by the company and thus the interest of the
management conquered the benefits of the company and the organization had to come across
such a scandal (Jenter and Kanaan, 2015).
Along with that there were several personnel who were actually responsible for this particular
scandal. The very first fingers are raised against the managers who viewed their personal
interests of making wealth rather than interest of the shareholders, and thus they targeted
increasing the stock prices for their personal benefits and ran after the growth of the short-term
profitability of the organization. Also the shareholders of the company were another group of
players behind this failure who failed to enact their requisite control and oversee the operations
of the company (Tricker and Tricker, 2015). Here we can consider the Stakeholder Theories of
corporate governance that refers to the fact that not only the shareholders but also the customers,
clients, the surrounding communities and the other suppliers necessarily have a stake within a
specific corporation. All of them are very much affected by the success or the failure of the
corporation indeed. So that remains the obligation of the company to ensure that all of them
receive a fair return in context with their stake from the end of the organization (Bottenberg, et
al. 2017).This theory advocates that the board must take care of the interests of all the
stakeholders by ensuring that the practices made by the organization considers the principles of
sustainability of the communities.
Although the shareholders do not have any direct management power, yet the fact that they can
elect the management of the company by the means of their valuable vote indicate that they have
a major role in the entire decision making process of the company. With the onset of this

scandal, the returns for the majority of the shareholders have drastically lowered due to the major
economic losses faced by the organization in terms of the lost reputation and profit, and the fines
and other legal charges that had to be incurred by the company. But when it came to the matter
of taking the charges of the scandal, then it was only the CEO. So for me this is a pure case of
corporate governance failure and the newly appointed CEO, Matthias Mueller remains an
external player regarding this scandal whose reputation and experiences in the Porsche and Audi
can be utilized fundamentally by the Volkswagen to re-establish their lost reputation in the
market across the globe (Aurand, et al. 2017).
Conclusion
This assignment tries to bring about the various reasons that have perhaps played a major role in
the emission scandal that was raised against the Volkswagen for cheating the air pollution test of
the USA by means of installation of a software on some of the cars that manipulated the
emission data and largely affected the concerns of the environment and the other consumers.
And it was found that a good corporate governance if required by every organization to remain
stable in the market above every other thing.

Reference List
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implementing social responsibility policies for organizations. Risk Analysis, 36(5), pp.870-873.
Sharpe, N.F., 2017. Volkswagen's Bad Decisions & Harmful Emissions: How Poor Process
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Johnston, A. and Morrow, P., 2016. Fiduciary Duties of European Institutional Investors: Legal
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Milne, R., 2015. Volkswagen: System failure. Financial Times. Retrieved from http://www. ft.
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Jenter, D. and Kanaan, F., 2015. CEO turnover and relative performance evaluation. The Journal
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Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices.
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Aurand, T.W., Finley, W., Krishnan, V., Sullivan, U.Y., Bowen, J., Rackauskas, M., Thomas, R.
and Willkomm, J., 2017. The VW Diesel Scandal: Engaging Students via Case Research,
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